11/07/2009 @ 12:00PM

Ford Learns The Price Of Solvency

In plant-by-plant voting over the last few weeks a large majority of the 41,000 United Auto Workers (UAW) workers employed by the
Ford Motor Company
voted to reject modifications to their collective bargaining agreement negotiated by their own national union. The modifications were designed to bring the Ford-UAW agreement into parity with concessions the UAW gave to GM and Chrysler as part of their government-brokered bankruptcies. They included a wage freeze for entry-level workers until the 2015 contract, a commitment to binding arbitration with no strikes until 2015, and other concessions. In return Ford promised to keep work in various UAW plants in the U.S., and to pay a $1,000-per-worker bonus. This rejection also ends for now the UAWs long-standing commitment to “pattern” bargaining, meaning that the Detroit 3 all get the same labor agreement. Not since Chrysler’s near bankruptcy and federal loan guarantees in the late 1970s has this pattern been broken.

Instead of the 50% required for approval, some UAW locals rejected the agreement overwhelmingly; in the Ford truck plant in Kansas City it was defeated with 92% opposed. There is a sense in the UAW rank and file that they have given enough, and that Ford doesn’t need any more help. It is true that, coming off the Cash for Clunkers” incentives, Ford’s North American auto business made $357 million in the third quarter, but this was their first positive result since early 2005. Ford also remains encumbered by interest payments to its creditors, on which GM and Chrysler simply defaulted. Thus, despite the efforts of the UAW leadership, we have the irony that the one American car company that has so far avoided bankruptcy will be penalized for its solvency.

Of all the losers in the automotive crisis, the working UAW members have lost the least. The most egregious of the excesses have been eliminated; there is, for example, no more “Jobs Bank,” where thousands of UAW workers earned their pay while playing cards in the plant cafeteria. Also, UAW workers must now work a 40-hour week before receiving overtime, and they must accept generic drugs. But while the shareholders of GM and Chrysler were wiped out, and the GM bondholders got only a 10% equity stake in the new GM for the $27 billion they lent the old GM, there has been no reduction in the generous base pay, health care or pensions of active UAW workers. The UAW retains numerous negotiated restrictions on whether and when GM can import a car. It is a testament to the political skills of the national UAW, and to the pliancy of the administration, that so few concessions were made by the union when all others involved lost their collective shirt.

The UAW has a monopoly on labor at the Detroit 3 and has had for generations. UAW members work industry-wide while the car companies are not permitted by antitrust laws to implement a combined labor strategy. The old UAW “pattern” concept at least standardized labor costs across the Detroit 3 and picked no favorites. With this now rejected by the rank-and-file, the UAW labor will cost more at Ford than at GM and Chrysler. Through its benefits trust, or VEBA, the UAW is the majority shareholder in Chrysler, and the second largest, after the U.S. government, in GM. The UAW trust is represented on both boards of directors. Although an unintended consequence of the GM and Chrysler bankruptcies, Ford must now negotiate for labor savings with a monopoly that owns its crosstown competitors.

While the Bush and the Obama administrations did the right thing in preventing the liquidation of GM and Chrysler in the depths of the recession, mistakes have been made. GM and Chrysler should have been merged to capture billions in North American synergies, the gift of Chrysler to
Fiat
is unlikely to succeed where Daimler failed, and allowing California to effectively mandate corporate average fuel economy laws (CAFE) for the nation can only hurt the domestic industry. But all of these problems fade when compared to the failure of the presidents Automotive Task Force to address the competitive disadvantage of a strong and intrusive union whose new equity ownership in the domestic industry only enhances its already formidable power.

The tragedy for the domestic companies is that, while they spend months in complex negotiations with the national UAW and then agonize over plant-by-plant ratification votes, their real competitors, the Toyotas, Hondas and other foreign car companies with non-union U.S. plants, don’t have to deal with any of this drama. They decide their wages and benefits on their own, and Americans line up for a good job at the factory door.

Mr. Robinson is a professor of law at the University of Detroit Mercy. He is the former general counsel of
Delphi
,
ITT
Automotive and Metaldyne and the former head international and commercial lawyer for Chrysler.